Texas Data Center Restrictions Threaten Timelines, but Not Necessarily AI Demand

Slower Builds, Scarcer Compute

• Will data centers get canceled post the election?

• Why are we not worried about Texas?

• Capital, not regulation, determines the buildout

1. Will Data Centers Get Canceled Post the Election?

Data center stocks were hit hard after the vote. Many lost about a third of their value in three trading days, on top of 30–40% declines from their peaks earlier this year.

Democrats won both chambers of Congress on Tuesday, along with the governorships of Texas, Georgia and Ohio. Investors quickly priced in the risk that a quarter to half of planned data centers never get built. We think the reality is much more nuanced.

• First, data centers have been one of the biggest drivers of U.S. economic growth and employment over the past three years. Pushback against them is nothing new. It mostly comes from communities that want to make sure to mitigate any negative impact associated with the buildout (e.g., higher electricity prices or damage to the environment). Some communities oppose data centers outright, but projects there aren’t even in the pipeline of likely builds.
• Second, the project pipeline is enormous compared with what we expect to be built, in the U.S. and globally. If a state or community adds regulatory hurdles that make a project uneconomical, the capital will likely go elsewhere. The most likely outcome of the election is that economics and timelines change for some projects that aren’t yet approved, and capacity elsewhere fills the gap. This matters most in Texas, which we cover in the next section.
• Third, and most important, a slower buildout should mean higher GPU prices and a stronger hardware cycle. We think this is what most investors are missing. That’s because NVIDIA and the rest of the value chain plan their capacity a year ahead and lock in critical components one to two years ahead.

Look at 2027. We track a pipeline of roughly 40 GW, and about 70% of it is already permitted and under construction. Even if only 25-30 GW comes online, that’s roughly 100% growth from the 12-14 GW we expect in 2026.

Compare that with NVIDIA, a proxy for hardware: consensus expects it to grow about 70%, and the company says supply is what’s holding it back.

In 2028, the pipeline we track is about 60 GW. If only 35-40 GW is built, which we see as a conservative assumption, capacity would grow about 35%, compared with consensus growth of about 30% for NVIDIA.

In short, the hardware cycle needs a healthy data center pipeline, but what matters most is demand vs. available supply. That balance sets GPU pricing and, with it, how long the cycle lasts. If demand is strong, the projects will find a place to be built.

Our read: is new regulation making data centers harder to build? Yes. Is it enough to justify this week’s sell-off in hardware stocks? We don’t think so. Rents were climbing before the vote: an H100 costs about 35% more to rent than in January, four years after its launch. A slower build also stretches hardware orders across more years and lowers the risk of overbuilding. We see a longer cycle, not a shorter one.

2. Why Are We Not Worried About Texas?

The biggest negative reaction was to Texas, which has the country’s largest data center pipeline: about 93 GW of announced projects, nearly three times Virginia’s, and close to 30% of the U.S. capacity scheduled for 2028.

But pushback on data centers isn’t new, and regulators were going to act regardless of the midterm results.

Requests to connect new data centers to ERCOT, the grid operator that serves most of Texas, got out of control earlier this year. By February, more than 230 GW of large-load requests were in the queue. By June, that number had climbed past 438 GW, nearly 90% of it from data centers.

For context, ERCOT’s all-time peak demand is around 85 GW, and data centers there use only about 10 GW today.

When we met with several neocloud companies in May, it was already clear that ERCOT wasn’t approving new projects beyond the existing pipeline, so none of this is entirely new.

• August: Gov. Greg Abbott ordered ERCOT to review large data centers waiting to connect, which froze new connections.
• September: he told TCEQ, the state environmental regulator, to stop issuing data center permits until that review is done, expected in mid-December.
• November: Democrat Gina Hinojosa won the governor’s race. She takes office on January 19 and has promised a moratorium on new data centers until lawmakers set rules on power, water and local input.

All three steps come back to the same local concerns: the grid, power bills, air and water. Projects that pay their own way should still get through, later and at a higher cost.

That splits the Texas pipeline in two. Only about a fifth of it, 19.5 GW, is under construction, and those projects keep moving: Galaxy’s fully financed Helios campus starts delivering a 260 MW phase to CoreWeave in the second quarter of 2027, and Oracle’s Stargate campus at Shackelford begins deliveries in the first half. Phases that still need an air permit for an on-site gas plant, such as Meta’s El Paso campus, are the most exposed.

Projects that stop making sense in Texas will likely be built elsewhere:

• Other states: Virginia, Pennsylvania and Indiana already have about 20 GW under construction.

• Other countries: builders are looking harder at the Nordics, Canada and Latin America, and Google committed $15 billion to Malaysia for 2027–28 this week.

Our read: the risk is timing, not cancellation. Our project-by-project review ties only a few gigawatts of 2027 capacity to the Texas permit hold; for 2028, the question is how long approvals take. Policymakers are trying to clear an unrealistic queue of more than 400 GW, not to stop the buildout.

3. Capital, Not Regulation, Determines the Buildout

As interest rates rise, the winners will be the companies that can raise the capital to secure compute. But capital availability is nowhere near as stretched as it was in the last tech cycle.

The megacaps generate significant cash flow. And while they are adding some debt and equity to fund this leg of the buildout, the returns are strong and already showing up in their results.

Here’s how the next two years look:

2027: the 25–30 GW we expect to be built implies roughly $1.0–1.2 trillion of investment, at about $40 billion per GW. How will it be funded?

• $1.4 trillion of capex is planned across Microsoft, Alphabet, Amazon, Meta, Oracle and SpaceX.

• 79% can be paid from expected cash flow after dividends, and 93% with the debt and equity already lined up.

Microsoft, Alphabet and Amazon: consensus has each spending more than $200 billion, which works out to over 1 GW of new capacity a quarter each, even before other capex.

Meta reportedly plans to add about 7 GW in 2027, doubling its ‘26 capacity.

SpaceX aims to add 10 GW of compute in 2027, with an ambitious power and cooling plan for up to 20GW, though we see the high end as a stretch.

2028: the 35–40 GW we expect implies about $1.4–1.6 trillion, in line with current estimates:

• $1.5 trillion of capex across the same six companies.

• About 100% can be paid from expected cash flow after dividends, with about $2.9 trillion available in total once cash and borrowing capacity are included.

Building the full 60 GW scheduled for 2028 would take about $2.4 trillion, well beyond what anyone plans to spend. Not every project in the pipeline will be built, and capital will decide which ones are.

On our math, the money is there for what we expect to be built. What sets the pace is which projects are worth funding.

Our read: capital sets the pace of this buildout, and the largest builders have plenty of it. Where money is tight is at the margin, among neoclouds and developers that depend on borrowing. We expect prices to stabilize before they rebound. We favor businesses that gain from what goes inside each data center, such as in-server optics, CPUs for AI agents and chipmaking equipment, over those that need the building count to keep rising.

Bottom Line

Politics and rates gave investors two more reasons to sell AI hardware this week. Neither reduces demand.

Most of 2027’s capacity is already under construction, Texas is a question of timing more than cancellation, and the biggest builders have about $1 trillion more capital than their 2027 plans need.

The vote can slow the build. It can’t cancel the demand.

What We’re Watching

Texas’s grid review in mid-December, and whether the permit hold outlasts it once the new governor takes office on January 19.

CoreWeave’s results on November 10, a read on rental prices and borrowing costs. And NVIDIA on November 17.